What we know about Norinchukin’s $5bn sale

Secondaries Investor was lucky enough to spend a few days in Tokyo this month and caught up with several of the country’s secondaries market participants.

Over sushi and sake in the city’s Ginza district, we learned that sales from Japanese sellers are sporadic, but when they happen, they’re often gigantic disposals.

Take Norinchukin Bank’s sale of $5 billion-worth of private equity fund stakes, which we wrote about this week. For anyone doubting  Asia can provide meaningful dealflow to the global secondaries market, the “Nochu” (as the bank is known locally) sale is reason to take the region seriously.

Here’s what we know so far about the process:

– The portfolio is largely unfunded – around 75 percent we hear – and contains mainly young stakes.

– It contains stakes in around 35 private equity funds.

– The portfolio is being shopped to a select group of buyers.

– The sale is understood to be regulation-driven.

– Greenhill, which advised on Nochu’s February sale of around $1.3 billion-worth of stakes to buyers including Lexington Partners, has been engaged on this latest sale.

– Nochu is one of Japan’s largest banks with almost $1 trillion in total assets as of 31 December. It has a roughly 2 percent allocation to alternatives, according to PEI data.

If at least $5 billion ends up trading, the sale will be the largest portfolio disposal of all time, eclipsing the California Public Employees’ Retirement System’s 2015 sale of legacy real estate fund stakes to Strategic Partners involving between $2 billion and $3 billion of interests, and Abu Dhabi Investment Authority’s $2.4 billion disposal to Ardian in 2014.

It will also be a psychological milestone for the secondaries market.

There are only a handful of buyers which could acquire such a large portfolio. Market sources speculate that in addition to Ardian and Lexington, the only other plausible buyer in a deal this size is Singapore’s GIC.

At $5 billion, the most likely scenario is that the portfolio will either be syndicated down or split among multiple buyers. The latter option could be a blessing in disguise for Nochu – while a multi-buyer scenario means more paperwork for the bank and its advisor, selling parcels of a portfolio off to individual buyers can result in higher overall pricing, as Raphael Haas, chief executive of Melting Point Solutions, discussed in a Q&A with us this week.

The big question is: are regulation-driven sales back on the menu? Secondaries Investor understands that Nochu is selling due to a 2011 piece of domestic regulation that affects financial institutions with overseas operations – hence why other large domestic investors such as Japan Post Bank are not in market with a PE portfolio. But regulations in any regional market can mean institutions find themselves in need of selling down exposure, and in an era of near-par pricing for fund stakes, the secondaries market is a natural port of call.

In light of Nochu’s proposed sale, Ardian’s $18 billion target for its latest flagship programme doesn’t seem like such an outrageous figure after all.

Are regulation-driven sales back? Let us know: adam.l@peimedia.com or @adamtuyenle